edward nathan sonnenbergs DISCUSSION OF CHAIRMAN OF THE BOARD OF THE SANLAM (KANTOORPERSONEEL) PENSIOENFONDS v REGISTRAR OF PENSION FUNDS (CASE NO /05) Presented by Jonathan Mort, Director, Retirement Fund Specialized Services (24 October 2006)

edward nathan sonnenbergs Pension Fund Second Amendment Act, No. 39 of 2001 (“the surplus legislation”)  Promulgated on 7 December 2001  Introduced certain definitions  Sections 14A, 14B, 15A – 15K

edward nathan sonnenbergs Surplus Scheme Provisions  Every fund must submit a surplus apportionment scheme as at the effective date of its first statutory actuarial valuation after 7 December 2001 (SAD) (section 15B(1))  Add to actuarial surplus the amount of any improper use (section 15B(5)(a))  Deduct minimum benefits due to former members and minimum pension increase adjustment due to pensioners (section 15B(5)(b))

edward nathan sonnenbergs Surplus Scheme Provisions (cont)  Residue must be “equitably split between existing members, former members and the employer in such proportions as the board shall determine after taking account of the financial history of the fund” (section 15B(5)(c))

edward nathan sonnenbergs Section 15B(6) – The Improper Use Provision  Section 15B(6) “Surplus utilised improperly by the employer prior to the surplus apportionment date shall consist of— (a)the cost of benefit improvements for executives in excess of the cost that would have applied had the executives enjoyed the benefits provided to other members; (b)the cost of any additional pensions or deferred pensions granted to selected members in lieu of the employer’s obligation to subsidise the medical costs after retirement of those members; (c)the cost to recognize prior pensionable service for selected members or for members transferred into the fund in excess of any amount paid into the fund in respect of such prior service; and (d)the value of any contribution holiday enjoyed by the employer after the commencement date: Provided that the board may exclude from surplus utilised improperly by the employer any use of actuarial surplus which the Registrar is satisfied was approved by the members, or by trade unions representing the members, after a clear and comprehensive communication exercise as part of a negotiated utilisation of surplus by stakeholders.”

edward nathan sonnenbergs Sanlam Case – In Limine Points  The issue is whether the improper use provisions had any retrospective effect to a date prior to 7 December 2001  Points in limine by the Registrar  Application brought by the Chairman of the Board of the Trustees with no ostensible authority  The fund should have been cited as a party  The FMR should have been joined as a party  A declaratory order was not an appropriate remedy in this matter  Points in limine dismissed

edward nathan sonnenbergs Arguments by the Registrar  The word “prior” is not qualified and therefore, according to the Registrar, there is no limit to its application  Employers devised “spurious” schemes to “access” the surplus  Improper use provisions were necessary to “rectify the past misappropriation of assets of the fund at the hands of an employer”

edward nathan sonnenbergs Registrar’s Arguments (cont)  Surplus which benefited an employer other than through a proper process of negotiation “has always been unlawful or improper”  Schemes of improper use were “in all instances ultra vires the powers of the particular pension fund and in some instances amounted to fraudulent actions on the part of the participating employer.”

edward nathan sonnenbergs Registrar’s Arguments (cont)  FSB Appeal Board decision in BKB Group Retirement Fund v Registrar on 14 December 2004  Court held that if the rules of a fund permitted the surplus to be utilised in that way then it was lawful  Court held that if the actions of a fund were ultra vires then remedial legislation was not necessary  The word “prior” – expresio unius est exclusion alterius (section 15B(6)(d))  National Uranium Tanker Company v MV Partias GC 1995 (1) SA 475 (A) – presumption against retrospectivity

edward nathan sonnenbergs Decision of the Court  Court declared that section 15B(5)(a) and 15B(6) do not apply retrospectively to any date prior to 7 December 2001  Costs of the application awarded against the Registrar

edward nathan sonnenbergs Where To Now?  Registrar has lodged an application for leave to appeal  Is the Sanlam judgment binding pending the appeal?  MV Snow Delta Serva Ship Limited v Discount Tonnage Limited 2000 (4) SA 746 (SCA)  MV Triena Haji-Iannou v MV Tirena 1998 (2) SA 938 (D)  Beinash v Reynolds NO 1999 (1) SA 1094 (W)  Once the appeal is noted the judgment is suspended  Retrospectivity of former member claims?

edward nathan sonnenbergs What Do Trustees Do Now?  Schemes which have been approved by the Registrar where improper use was paid in by the company or account taken of it in apportioning the residual surplus  Schemes which have been submitted to the Registrar but not yet approved  Schemes which are in the process of being devised and have not yet been submitted to the Registrar  Insurance claim / estoppel in respect of claims by employer where improper use paid in and not recoverable?  Who will win the race – legislation or the appeal?

edward nathan sonnenbergs Thank you for listening.